Paul Glossop: Good day guys and welcome to Pure Property Investment one on one. Today I’m here with Jeremy Iannuzzelli. Jeremy is a partner at Keshab Chartered Accountant. And again, if you’ve watched some of our educational series in the past you noticed that really the intention of these quick videos is to hopefully give you an insight into what we do, how we do it and try and give you as much information education to be a better property investor.
Today we wanted to have a quick chat with Jeremy about positive gearing and negative gearing and the basics about each of those. So Jeremy if you wouldn’t mind enlightening our viewers maybe a little more about positive gearing and negative gearing and what they need to know.
Jeremy Iannuzzelli: Of course, definitely Paul. One thing when you are looking at buying an investment property, we do need to consider the outcome of the potential property itself and how it’s gearing. Will it impact our tax? Whether it is positive gearing and positive gearing means that our income is more than the expenses associated with the property including non-cash deductions like borrowing cost such as LMI and depreciation.
Negative gearing is obviously the reverse of that. That is when the expenses, including as those depreciation and borrowing cost as I suggested earlier, is more than the income. And the difference of that expenses being more than the income that we’ve earned for the investment property is what we call negative gearing and that helps I suppose at the little tax refund that we get at the end of the year. And on the reverse side of things positive gearing is again when the income more than the expenses gets added to our marginal income or whatever structure you might be in and that is when potentially might have to pay tax on that little bit of residual or passive income that we’ve earned.
Paul Glossop: You make it sound very simple and I think that’s what you very good at mate. But I guess the beauty about that and really where “oils ain’t oils” is necessary is the fact that there are pros and cons to each approach. And just because properties cost you money to hold doesn’t mean they necessarily bad investment and conversely just because a property make you a small amount of money in the short to medium term doesn’t mean it’s the right investment for you.
And I think probably word to the wise for all of our viewers having a chat with someone like ourselves or someone like Jeremy about pros and cons of negative versus positive gearing is really going to allow you to mend to your objectives and your strategy and your structures in which you buying your properties in are all thought of hopefully before you buy your next property because that is really the key is having your objectives and your strategy in place before you go out and execute.
Jeremy Iannuzzelli: Correct.
Paul Glossop: Thanks again mate. We’ll chat soon. Cheers!